In real estate markets higher values of Tobin’s q are the result of higher stock prices and higher rents for newly-built houses and indicate a higher investment level. The results of a panel analysis of German cities show that Tobin’s q explains up to 20 percent of the variation in dwelling investments in the last 15 years. However, analyses for the ten largest cities yield big differences across cities in respect to the correlation between Tobin’s q and the growth of the dwelling stock. We therefore integrate additional data on building activity in adjacent communities. These modifications increase the correlations substantially and suggest that functional housing markets do not end at city borders and vary significantly by city. Overall, the current values of Tobin’s q point to a moderate recovery of building activity in Germany.